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Corruption, Not India, Is CPEC's Biggest Threat
Panos Mourdoukoutas, CONTRIBUTOR
Oct 9, 2017 9:54 AM 136
In this photograph taken on August 8, 2017, Pakistan railway [+]
China Pakistan Economic Corridor’s (CPEC) biggest threat isn’t India. It’s corruption.
On both ends of the partnership — China and Pakistan, which makes the ambitious project look like a “sand castle.” CPEC’s long delays and cost overruns leaves Pakistan heavily indebted, heading to the door step of IMF, as it did back in 2001.
Foreign investors have been already casting a wary eye on the situation, especially after the recent shift in U.S. policy toward Pakistan that roiled the country’s markets.
Index/Fund 3-month Performance 12-month performance
IShares China (FXI) 14.15% 17.97%
Global X MSCI Pakistan (PAK) -8.95% -17.06
iShares S&P India 50 (INDY) 1.11 5.97%
Source: Finance.yah00.com 10/4/2017
India has good reason to oppose CPEC. The project stretches through areas India considers its own, such as Pakistan-controlled Kashmir.
Then there’s an ongoing concern that CPEC, together with a string of other projects in the Indian Ocean, is part of China’s grand plan to encircle India.
But so far, New Delhi has done very little to slow down the project, other than participating in joint exercises with America and Japan to counter the China-Pakistan alliance. The joint naval exercise in the Malabar in the Bay of Bengal last July was an example of that.
Meanwhile, CPEC is lifting Pakistan out from the bottom of the world competitive rankings, as it was discussed in previous piece here. But that progress may not be sustainable. The project is facing both delays and costs overruns due to corruption on both sides of the partnership: on the China side, which plans and constructs the project, and on the Pakistani side, which oversees the execution of the project.
That’s why Beijing and New Delhi announced the creation of a “transparency” commission last year to address these issues. The problem is that such commissions rarely solve corruption — especially when it comes to projects, which are constructed and executed by the governments of countries that suffer from corruption.
Country Corruption Index in 2010 Corruption Index in 2015
China 78/168 83/168
Hong Kong 13 17
Pakistan 143 117
India 87 76
Finland 4 2
USA 22 16
Source: Transparency International
Meanwhile the cost overruns of CPEC make Pakistan more indebted to China, at a time when the country is living beyond its means. Pakistan already suffers from persistent current account deficits, government debt, and external debt in the face of declining foreign currency reserves.
And the situation will become worse as U.S. interest rates rise, and capital flow to emerging market like Pakistan reverse course.
Once again, projects like CPEC may bring Islamabad back to the doorsteps of IMF, an institution that doesn’t have a reputation for being friendly to China’s friends.
That’s especially the case after the recent shift in America’s foreign policy towards Pakistan, as it was discussed in a previous piece here.
Oct 9, 2017 9:54 AM 136
![960x0.jpg](/proxy.php?image=https%3A%2F%2Fspecials--images-forbesimg-com.cdn.ampproject.org%2Fii%2Fw1200%2Fspecials-images.forbesimg.com%2Fimageserve%2F829963390%2F960x0.jpg%3Ffit%3Dscale&hash=94e77347b9ab70ed2cc34cd39dbe2622)
In this photograph taken on August 8, 2017, Pakistan railway [+]
China Pakistan Economic Corridor’s (CPEC) biggest threat isn’t India. It’s corruption.
On both ends of the partnership — China and Pakistan, which makes the ambitious project look like a “sand castle.” CPEC’s long delays and cost overruns leaves Pakistan heavily indebted, heading to the door step of IMF, as it did back in 2001.
Foreign investors have been already casting a wary eye on the situation, especially after the recent shift in U.S. policy toward Pakistan that roiled the country’s markets.
Index/Fund 3-month Performance 12-month performance
IShares China (FXI) 14.15% 17.97%
Global X MSCI Pakistan (PAK) -8.95% -17.06
iShares S&P India 50 (INDY) 1.11 5.97%
Source: Finance.yah00.com 10/4/2017
India has good reason to oppose CPEC. The project stretches through areas India considers its own, such as Pakistan-controlled Kashmir.
Then there’s an ongoing concern that CPEC, together with a string of other projects in the Indian Ocean, is part of China’s grand plan to encircle India.
But so far, New Delhi has done very little to slow down the project, other than participating in joint exercises with America and Japan to counter the China-Pakistan alliance. The joint naval exercise in the Malabar in the Bay of Bengal last July was an example of that.
Meanwhile, CPEC is lifting Pakistan out from the bottom of the world competitive rankings, as it was discussed in previous piece here. But that progress may not be sustainable. The project is facing both delays and costs overruns due to corruption on both sides of the partnership: on the China side, which plans and constructs the project, and on the Pakistani side, which oversees the execution of the project.
That’s why Beijing and New Delhi announced the creation of a “transparency” commission last year to address these issues. The problem is that such commissions rarely solve corruption — especially when it comes to projects, which are constructed and executed by the governments of countries that suffer from corruption.
Country Corruption Index in 2010 Corruption Index in 2015
China 78/168 83/168
Hong Kong 13 17
Pakistan 143 117
India 87 76
Finland 4 2
USA 22 16
Source: Transparency International
Meanwhile the cost overruns of CPEC make Pakistan more indebted to China, at a time when the country is living beyond its means. Pakistan already suffers from persistent current account deficits, government debt, and external debt in the face of declining foreign currency reserves.
And the situation will become worse as U.S. interest rates rise, and capital flow to emerging market like Pakistan reverse course.
Once again, projects like CPEC may bring Islamabad back to the doorsteps of IMF, an institution that doesn’t have a reputation for being friendly to China’s friends.
That’s especially the case after the recent shift in America’s foreign policy towards Pakistan, as it was discussed in a previous piece here.